Why Stimulus Spending Depresses the Economy
There is a good reason why Bush’s “economic stimulus” plans helped land us in economic depression, and why Obama following that precedent with bigger, badder stimulus plans will do even more harm.
It is the same reason why Japan’s “stimulus plans”, upon which ours were partially based, kept them in an economic depression for a decade, and did the same thing in Sweden.
- Lost Money: Every penny spent is taken from the private sector: whether through taxes; or by borrowing that robs from private investment, so nothing is gained. Then that money is wasted before it’s spent, because of the cost of bureaucracy, red tape, political motivation, and the lack of any control over the benefit of what it’s spent on.
- Crowding Out: The government spending competes with private spending, but has no checks or balances, no responsibility, so that it can crush the private competition out of the market, causing more economic harm instead of helping. It hires away workers and managers with large budgets, yet contributes less. It draws away research and investment from the private sector, et cetera.
- Chilling Effect: Healthy private investment and behavior is seen as punished, as unconditional public spending displaces it. Government spending tends to reward failure, and not to create wealth, while private spending depends upon productivity and success to expand. Bad companies, which do not contribute enough to society to justify their existence, have their ineffective ways perpetuated, instead of being excised and replaced with new competition.
(Don’t ask how I know, just work with me, here…)
Your neighbors, therefore, shall cause the full employment of a team of six carpenters/installers, for one week. And those workers will, in turn, use their pay in ways that end up rewarding others, by spending or investing.
Of course they’ll also be profiting the company that sells windows, which in turn will reward its suppliers by ordering more, et cetera.
Your neighbors will, too, have nicer windows. Their house will be more comfortable. They will save money on their energy bills. And, if they are Global Warming True Believers, they will also feel very good about their effort to save the earth.
All of this benefits society and the economy. Even the feel-good parts.
But perhaps your neighbors will be prevented from doing this, by Big Brotherment.
Maybe their taxes are, or will be, high enough that they won’t be able to afford to buy those thermal replacement windows.
Perhaps, in fact, the amount necessary to upgrade their house will, in fact, be spent on a Stimulus Package, funded by their taxes.
That tax money, instead of being spent on their house, will instead filter through the government bureaucracy. The majority of it will actually be paid to bureaucrats, who produce nothing but paperwork and rules.
What’s left, in theory, will go to some union contractors in Iowa, to finance a Corn Museum. Never mind that Corn makes more money for its producers than any other crop, the government is financing this to “stimulate” the economy.
So a team of three union carpenters will get paid for about five days, based on your neighbor’s tax money. Three, because a majority of the money was lost to red tape, and only five days, because the union monopoly dominating the government contract in question is overpaid.
Better still, once their hourly coffee breaks and four mandatory half-hour breaks are deducted, and you take into consideration the bizarre “safety” rules in their contract, that leave them standing around more often than working, what you will actually get is about the amount of work one carpenter’s could do in five days.
And it will be dedicated to building the 23rd corn museum in the United States.
So the options are:
- Your neighbors get a house full of thermal windows.
- Six carpenters get fully employed for a week.
- A window company is rewarded for improving the lives of your neighbors.
- Money is saved on energy.
- The planet is no longer doomed.
- Iowa gets 0.01% of a corn museum.
- Three carpenters get employed for five days, to do the work of one carpenter.
- People may, if the project is ever finished using other people’s tax money, get to save an hour over driving to the privately funded corn museum next door in Illinois.
Now a government bureaucrat will, in defense of his precious Pork budget, say “but we can’t be sure your neighbor will buy thermal replacement windows!”
But, quite frankly, we can be just about 100% certain that they will spend it on something they value. I’m not entirely clear on how even pet rocks and full body massages would be any less of a contribution to the economy than another corn museum.
And, seriously, much of the government’s spending benefits society less than corn museums, too.
Bridges to nowhere, two thousand dollar toilet seats, military equipment the generals said they didn’t want, but some senator insisted on funding because it is built in his state, methadone for junkies that is more addictive and toxic than the heroin it is replacing, free benefits for illegal aliens…
Face it, the corn museum was actually an optimistic example of government benefiting society.
Ultimately, each dollar the government spends must come from a dollar ALREADY taken from your pocket, directly or indirectly. There is no stimulation, because it’s just the same dollar. And, worse, YOU would have bought something you felt was beneficial, not wasted it on some bureaucratic make-work project.
And let’s not forget that the government’s spending competes with private spending. There is a pressure against private industry, when it’s forced to compete with a government that can forcibly finance a project without any standards for success.
As noted above, if you are a carpenter, you can get a job where you are paid for what you accomplish, in the private sector, or you can get a job in a government contract where a union monopoly guarantees you more pay, for less work, a coffee break every single hour, and you’re not actually expected to even succeed, or do good work.
With government spending, therefore, one ends up with fewer skilled workers in the private sector.
Better an easy government research job with no results required except regular publication of results, than private sector research, that must actually prove some contribution to society.
This is why things like cancer research and alternative energy research have produced only insanely expensive, ineffective results.
Why build a privately financed corn museum, when there is a public one planned nearby? The free market depends on the pressure of demands, which can be supplied because of the reward of profit, fame, et cetera. All of which is quashed by public competition…producing LESS economic activity, prolonging, or even creating, economic downturn.
This is even true of investment. Why risk money buying stocks, or investing in any other resource that actually helps create wealth and grow the economy, if the government is issuing trillions in bonds that it can guarantee, at gunpoint, it will be able to afford to pay off?
This is part of why the US stock market is below where it was a dozen years ago; the past nine years of massive growth in government spending have crowded out even investment, depressing economic growth and the availability of money for business and individual use.
Capitalism helps society prosper, in part, by requiring that businesses be efficient and useful, or else be displaced by other, better, more efficient competition. Government “stimulus” spending helps bad behaviors and inefficient companies survive, preventing the openings for new, better ways.
Government spending, too, has to reward failure and punish success, directly. Not just by bailing out failures, but with its own agencies: It would be irresponsible to expand the budget of a project that was already coming in ahead of schedule and under budget. What a waste of taxpayer dollars! Instead, if the agency wants to expand its budget, it must fail. It must show how it is over budget and behind schedule, and how natural this is, how more money and power will help it achieve its goals.
Meanwhile, responsible, productive businesses are punished for their contribution to society.
What if Ford ends up the weakest of the three automakers, because it didn’t take the thirty billion taxpayer dollars and declare bankruptcy? What does this tell companies in other industries, when they’re considering whether to be productive, or else squander money and go crying to the stimulus committees for bailouts?
There are hundreds of billion dollars in bad investments, loans, et cetera, that need to simply fail, because they cannot ever be productive. Right now they are gangrene on society’s body, just burdening our health and slowly spreading…but the stimulus/bailout money keeps them from being removed, and even helps them expand, quashing healthy alternatives.
In each case, around the world in history, the only way to get out of economic depression was for the government to STOP killing the economy with its fake “stimulus” packages.
It took Japan and Sweden ten years to figure this out. Some other countries never have, and still are suffering for it.
Even in the US, the government constantly expanded spending to “stimulate” from 1929 through 1938, and only truly enjoyed healthy economic growth when spending and regulation were massively cut in the late forties and fifties.
The opposite of this was the depression of 1920-21, where banks failed, commodity prices plummeted (like housing prices now), the stock market crashed…and the US government did virtually nothing.
That lack of “stimulus” resulted in a depression less than two years long, unlike the decade of the other examples.
Check out the extensive history of economic downturns in the US, for more.
Ultimately, government spending actually sucks the life out of the economy, increasing and prolonging economic depression, because it must take private money in order to “spend” the public money…as if you gave yourself a blood transfusion by taking blood your left arm and putting it in your right…with the stress of the transfusion actually leaving you weaker than when you started.
14 Comments »
This site has its origins before the word “Blog” existed. Back then its owner, Kaz, was simply thought of as having a website that published socio-political articles with regularity…But the only real difference was that the RSS/XML protocals were not yet used this way.
The website was known as Site of the Sentient, a reference to the famous Words of the Sentient, that Kaz had been editing for years previously.
When some random portal site hijacked the domain siteofthesentient.com, it was a dark time for the human knowledge quest. Fortunately, But Now You Know is striving to take up the slack, and even has some revamped versions of the original articles, for example Conscription, is it Slavery, and How to Get Out of Jury Duty, and be a hero instead of a bad citizen.
Kaz is a writer, graphic artist, and supplements his income by being a hardcore senior web developer.
Along with this blog, you can track his efforts with the dedicated facebook page here.
Speaking of tracking:
Share This Article
- Your Right to Not Support Evil
- Global Warming Shamanism
- The Squeaky Wheel…May Be Foolish
- Disarming the Victims
- The Inconvenience of Too Much Liberty
- The Supreme Court, on Nipples
- Information Must be Free
- Err on the Side of Innocence
- Many Laws = Corrupt Government
- Another’s Happiness, Equal to Your Own
Other Things You Need to Know
- How to Get Out of Jury Duty...and be a hero for it, instead of a "bad citizen"!
- Why You Can't Trust Your Government
- Why the End Does Not Justify the Means
- Going Green is Bad for the Environment
- The History of Economic Downturns in the US
- Why Workers Dislike Unions
- Hayek's 1932 Letter on the Great Depression
- The Tyranny of the Majority, vs the Unanimity of Liberty
- Sherman Anti-Trust Act, and Analysis
- WARNING: Composting Increases Your Carbon Footprint!
kazvorpal on Why Workers Dislike Union… james Clanin on Why Workers Dislike Union… Don Obrien Sr. on Why Workers Dislike Union… kazvorpal on Monkeys Don’t Kill Peopl… kazvorpal on Monkeys Don’t Kill Peopl…
- GMOs are Safer Than “Natural” HybridsPeople try to claim that Genetically Modified Organisms, for example corn with a gene spliced in that helps it resist a disease, are somehow more dangerous, because we don’t know what other changes the splicing may have wrought. The claim is made that that they are somehow “unproven” and could contain some surprise risk, but […]
- Ron Paul is Right: Don’t Abandon What We’ve AchievedIn his recent appearance on Jay Leno, Ron Paul made it clear that we should continue the fight to reclaim the Republican party from the socialist RiNOs…not abandon it for the ever-failed Libertarian party, right when we’ve achieved so much. After the fiasco of blatant rule-violation and corruption at the Republican national convention, some Libertarian […] […]
- It’s Because OBAMA Didn’t Build AnythingObama made the headlines last week, giving a speech from which a quote has been plucked and repeated, “If you’ve got a business, you didn’t build that.” This is yet another example of a quote missing the context of the speech around it. We need that context, in order to understand where Obama was coming […]
- Martha Stewart Did Nothing WrongWhat makes something good, or bad, is not whether it’s legal or banned. Anyone who disagrees can go explain it to Mr. Schindler. The difference between right and wrong, good and bad, is whether you violate another person’s property (including their body). This is the one universal “good versus evil” shared by all societies and […]
- How Green Food Causes World Hunger — Eggs“Organic” and other “Green” agriculture and food production is already widely understood to be causing food shortages, and skyrocketing food prices, worldwide, but it’s often too subtle and abstract an effect for regular people to really understand. But now we have a very stark, clear example, a crisis caused by imposing “green” techniques on everyone: […] […]
- Today, Congress Will Kill 387 PeopleNo, I don’t mean Congress will order the execution of 387 people today. I’d almost respect that more, because it’d be direct and therefore, in a sense, far more honest. But, according to a snowballing body of science, the sleep deprivation you’re suffering today because of Daylight Saving Time ends up killing hundreds of people, […]
- How Bush/Obama Create Terrorists“Look, we are AGAINST the Taliban, but if this action is repeated, we will all join the Taliban, and then these [US] forces will not be able to stay one more minute in Afghanistan.“ Next time some ridiculous neocon claims Muslims become terrorists simply because they hate our “way of life”, not because of what […]
- How Government Stimulus Caused the Great DepressionFiled under: Economy, History Tagged: depression, government spending, great depression, herbert hoover, hoover, jobs program, obama, stimulus spending
- Worried about Bed Bugs? Thank the EPAYes, we all know that the DDT ban has caused the deaths of millions by malaria. But there’s something far more important to us in the US: The scourge of bed bugs has been spreading like wildfire, and they are really unpleasant. Bed bugs were pretty-much extinct in the US, by the early 1970s, killed […]
- Ron Paul in the General ElectionThere is this common myth that a “moderate” Republican — a big government interventionist — is the best choice for a general election. They are called the most “electable”…by the Big Government advocates in the media. As proof of this, we can look to how well Bob Dole and John McCain did. Conservatives compromised their principles, and […]
- GMOs are Safer Than “Natural” Hybrids